Obama Talks Up the Economy, But Who Gets the Credit?David J. Lynch
President Barack Obama has been proclaiming an American comeback, buoyed by an economy that’s growing at its fastest pace in more than a decade.
Now, he just has to prove he deserves the credit.
While Obama’s crisis-fighting efforts in 2009 pulled the economy out of a historic nosedive, the recent growth bears fewer presidential fingerprints.
More than six years of the Federal Reserve’s near-zero interest rates has helped households shed debt and made it easier for companies to fund expansions. The narrowing deficit has curbed pressure to cut federal spending. And the plunge in oil prices to below $50 per barrel since June 2014 has been an unexpected windfall for consumers.
With Obama poised to highlight the economic revival in next week’s State of the Union address, the question of how much he had to do with the rebound is more than academic. The 2016 election partly hinges on whether voters agree they have the president to thank for faster growth and a better jobs market.
“If the Democratic nominee can say with a straight face that President Obama has built a good foundation, it becomes a lot easier to construct an affirmative message,” said William Galston, a top domestic-policy aide in President Bill Clinton’s White House. “Your job is a lot harder if you have to distinguish yourself from the incumbent.”
The economy is likely to continue growing at almost a 3 percent annual clip through Election Day next year, according to economists surveyed by Bloomberg. That suggests an uphill fight for Republicans seeking to recapture the White House.
“A ‘let’s change course’ message has less resonance,” says Galston, who was also issues director for then-Vice President Walter Mondale’s losing presidential bid in 1984, when the economy grew 5.6 percent.
While Obama’s chief political adversary, Senate Majority Leader Mitch McConnell, links the turnaround to voters’ anticipation of a Republican-run Senate, the recent economic brightening is lifting the president’s standing.
A Pew Research Center poll this month shows that 47 percent of respondents approved of Obama’s job performance, up 5 points in a month to its highest level since June 2013. And 38 percent -- the highest mark recorded in six years of surveys -- said the president’s policies had made economic conditions better compared with 28 percent who said they’d made things worse.
The economy’s performance in the past two quarters -- an average of 4.8 percent growth -- was the strongest in a decade. The number of new jobs has increased for 58 consecutive months and private-sector employment has grown by an average of 280,000 over the past three months -- roughly double the monthly rate since the 2009 end of the recession.
Consumer confidence surged in January to the highest level in 11 years as steady job gains and falling gasoline prices brightened the outlook for U.S. households. The University of Michigan preliminary consumer sentiment index rose to 98.2, from a final reading of 93.6 in December.
The White House has been careful to avoid trumpeting any Obama boom. Wage gains have been barely perceptible and the number of workers who have been jobless for more than six months remains elevated. Jason Furman, chairman of the president’s Council of Economic Advisers, said in a telephone interview that the president’s policies “contributed to turning the economy around, accelerating our growth and bringing down unemployment.”
The economy has appeared set for liftoff in the past only to disappoint. The Eurozone’s prolonged stall, coupled with China’s slowdown, could boomerang on the U.S. Investors have been rattled in the first weeks of the new year by a volatile stock market. And falling oil prices that cheer consumers are bad news for the oil producers riding the shale boom.
Already, Continental Resources Inc., the biggest player in North Dakota’s Bakken shale formation, has cut its spending plan for this year by 41 percent to $2.7 billion.
Specialists beyond Washington’s Beltway dispute the conventional wisdom that presidents exercise great influence over a $17 trillion economy.
“I can’t think of any economist who would say politicians deserve as much credit or blame as they get,” said Alan Auerbach, an economist at the University of California at Berkeley.
Like most economists, Auerbach agrees that the administration’s 2009 economic-stimulus program and rescue of the automotive industry averted an even more punishing recession. The White House says 12 subsequent initiatives -- including a payroll tax cut, more generous depreciation of business investment and extended unemployment insurance -- also propped up the weak economy.
These additional measures, coupled with the stimulus, added up to almost $1.4 trillion spread over four years through 2012, according to the White House.
Auerbach is unconvinced. “I honestly can’t think of any important policy initiative in the last few years that contributed to current growth,” he said.
Washington’s greatest contribution to the economic expansion may lie in what politicians aren’t doing rather than what they are.
For the moment, the showdowns over raising the nation’s borrowing limit -- such as the August 2011 episode that sent consumer confidence to its lowest point in the six years -- are past.
The easing of austerity, which drove the federal budget deficit as a share of the economy to 2.8 percent last year from more than 10 percent in 2009, is helping boost growth.
“The government was really putting the screws on the economy and no longer is,” said economist Paul Ashworth of Capital Economics. “Everything’s going in the right direction.”
Spending cuts were largely forced upon the White House by congressional Republicans. Federal spending last year was more than $440 billion lower than the administration planned back in 2010.
To many economists, the nation’s independent central bank deserves more credit for the recovery. Under former chairman Ben S. Bernanke and his successor, Janet Yellen, the Fed moved aggressively from the early days of the crisis.
“The biggest driver of the entire recovery has been monetary policy,” says Jim O’Sullivan, chief U.S. economist at High-Frequency Economics.
White House officials note that Fed governors owe their jobs to the president. In any event, low interest rates made it easier for consumers to pay off debts. Since early 2014, debt repayment has claimed less than 10 percent of households’ disposable income, the first time that has happened over such a period since the Fed began tracking the figure 35 years ago.
Over the past six months, the pace of some consumer borrowing has quickened. The total volume of car loans rose 5.6 percent over the last two quarters, almost twice the pace of the previous half-year.
Corporations, too, took advantage of lower borrowing costs. In 2014, U.S. corporate bond issuance topped $1.6 trillion, more than 40 percent greater than in 2010, according to data compiled by Bloomberg. Companies used the proceeds to refinance existing debt, boost shareholder dividends, and fund new investment or acquisitions.
Last week, as the president traveled the country, he marked the progress made by saying, “America is coming back,” and he previewed proposals designed to spread the recovery’s gains. Among them: cheaper federal mortgage insurance premiums and two years of government-paid community college tuition for students who meet a required grade point average.
“We are most of the way recovered from the worst crisis since the Great Depression,” said Furman. “But we have a lot more work to do.”